A bad bargain on land

The thumbs down given by large sections of industry to the new land acquisition bill cleared by the union cabinet once again brings to the fore issues regarding the government intervention in land acquisitions. Though farmers are yet to react to the new bill the industry is clearly unhappy for a number of reasons. Their grievances are to do mainly with the provisions regarding consent of landowners, the price of land and the retrospective nature of law, all of which are at the core of the new bill.

The industry’s main grouse against the provisions regarding consent of landowners is that the new law would make government acquisition of land for private sector projects possible only if 80% of the landowners give their consent. And even the reduction of the consent norms to 70% of the landholders in the case of public private partnership (PPP) projects does not seem to have provided any consolation to the private sector.

However, these consent rules by themselves are no cause for major concern as industry can always find ways of circumventing such restrictions. For instance industry can boost consent numbers substantially by buying up some land in the proximity of the project and parcelling it off into smaller plots held by associates or even employees. So rather than the consent norms it is more likely that the real reason for grouse of the industry is the increase in the minimum land acquisition prices to twice the market rates in urban areas and up to four times the market rates in the rural areas. Such stipulations could prove to be very costly because it would not only push up the cost of the government acquired land but also that of land that the industry plans to acquire on its own. This is because the legislated norms would be the new parameter that determines the base price for land.

However, what make the pricing provisions of the new land bill especially galling to industry are the bill’s provisions that make its applicable to all ongoing land acquisitions and even to cases where actual possession of land is still awaited or where compensation has not been paid or accepted. This is an absolute game spoiler as such a provision would even provide an incentive for the landowners to resist full closure of the deals and demand maximum prices which would bleed industry badly.

But more damaging than the land costs would be the litigation unleashed by such retrospective provisions. Such legal tangles would not only take away a disproportionately large time of the company management but also put a legal spanner in the works ensuring large time and cost overruns. So rather than helping industry, the new bill seems to have turned everything against them. This is something that industry has not clearly bargained for. The problems of retrospective laws clearly apply not only to taxes but also for all deals and agreements that have a major impact on other input costs and prices.